• Struggles to build on early modest recovery move.
• Weaker US bond yields capping gains.
• A goodish USD rebound still supportive.
The USD/JPY pair held on to its recovery gains through the early European session, albeit lacked any strong follow-through momentum and remained capped below the 111.00 handle.
The pair stalled its recent downward trajectory and rebounded a bit on Tuesday, snapping 6-consecutive days of losing streak amid easing US Dollar bearish pressure and near-term oversold conditions.
The uptick was further supported by today's weaker than expected release of Japanese PPI figures for December and risk-on environment, which tends to weigh on the Japanese Yen's safe-haven appeal.
Meanwhile, comments by the Japanese Finance Minister Taro Aso, saying that he did not see problems with the pair hovering around 110.80 area, remained supportive of the pair's recovery attempts from 4-month lows touched in the previous session.
The up-move, however, seemed lacking conviction and was being capped by weaker tone surrounding the US Treasury bond yields. This coupled with growing market expectations for lessening monetary policy divergence between the Fed and the BOJ might continue to collaborate towards keeping a lid on any meaningful recovery.
Later during the NA session, the release of Empire State Manufacturing Index, the only important release from today's relatively thin US economic docket, would now be looked upon for some fresh trading impetus.
Technical levels to watch
Immediate support remains near mid-110.00s, below which the pair seems more likely to extend its bearish trajectory towards the key 110.00 psychological mark.
On the upside, the 111.00 handle now becomes an immediate resistance, which if cleared might trigger a short-covering bounce towards 111.40 level en-route the very important 200-day SMA barrier near the 111.70 region.
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